Midwest regional bank Old Second Bancorp (NASDAQ: OSBC) missed Wall Street’s revenue expectations in Q3 2026 as sales only rose 1.2% year on year to $97.42 million. Its non-GAAP profit of $0.55 per share was 5.2% below analysts’ consensus estimates.

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StockStory’s take

Old Second Bancorp’s third quarter results missed Wall Street’s expectations, as modest revenue growth was offset by a notable increase in net loan charge-offs. Management attributed the underwhelming performance to a large, previously flagged commercial and industrial credit, which drove higher loan losses. CEO James Eccher emphasized that, despite these challenges, the quarter saw significant improvement in key credit metrics such as reductions in classified and criticized loans. He noted, “We think we have turned the corner… and feel as good about the loan book today as we have in several years.”

Looking ahead, management’s guidance is shaped by expectations for low single-digit loan growth and a continued focus on maintaining a strong net interest margin, even as competition for deposits intensifies. CFO Bradley Adams highlighted the potential for a slight decline in margin due to increased funding costs but remained optimistic about the bank’s overall earnings trajectory. The company also anticipates a meaningful boost in originations from its new partnership with Ducati USA, which is expected to support growth into next year. Management remains attentive to balancing ongoing share repurchases with the flexibility to pursue strategic acquisitions as opportunities arise.

Key insights from management’s remarks

Management highlighted the resolution of a major credit issue, ongoing deposit optimization efforts, and a new lending partnership as key themes shaping performance and outlook.

• Charge-off resolution: The elevated charge-offs were driven by a previously identified commercial and industrial credit. Management noted this issue is now largely resolved, with the underlying business under contract to be sold and further losses unlikely to recur at similar scale.
• Credit quality improvement: Significant declines in nonperforming, classified, and criticized loans were reported. Management stressed that asset quality metrics are at their best levels since before the COVID-19 pandemic, signaling a positive shift in the credit landscape.
• Deposit base optimization: The runoff in higher-cost deposits, particularly those acquired through previous acquisitions, continued during the quarter. Management now expects this attrition to be mostly complete, with deposit growth anticipated from here, albeit at somewhat higher rates.
• Share repurchase activity: Old Second Bancorp was active in buying back shares, reducing outstanding equity by approximately 3% in the quarter. Management indicated an ongoing commitment to repurchases while maintaining capacity for potential M&A activity.
• Ducati USA partnership: The bank announced a new multi-year, endorsed lending agreement with Ducati USA, which is already generating application flow and is expected to meaningfully boost originations in the powersports segment, especially in 2027.

Drivers of future performance

Management’s outlook for the coming quarters is shaped by expectations for moderate loan growth, stable asset quality, and disciplined expense management amid deposit competition.

• Loan growth pipeline: The bank targets low single-digit loan growth in the near term, with a solid pipeline reported for the fourth quarter. Management noted broad-based demand across commercial, small business, and consumer segments, with the Ducati USA partnership expected to further support new originations.
• Deposit pricing and margin pressure: Rising competition for deposits could lead to a modest reduction in net interest margin, as higher funding costs partially offset repricing benefits from variable-rate assets. About 45% of the loan book and 25% of the securities portfolio are set to reprice in the next three to four quarters, providing some future yield tailwind.
• Expense discipline and strategic flexibility: Management expects expense growth to remain modest, targeting a 3-4% annual increase. The company aims to balance continued share repurchases with the ability to pursue smaller, “fill-in” acquisitions to supplement organic growth, leveraging its strong capital position.

Catalysts in upcoming quarters

Looking ahead, the StockStory team will watch (1) whether credit quality improvements are sustained, particularly regarding reductions in criticized and classified loans; (2) the impact of new lending partnerships, especially Ducati USA, on loan growth and originations; and (3) how deposit growth and pricing trends affect net interest margin in a competitive funding environment. Execution on expense discipline and strategic capital deployment will also be key markers of success.

Old Second Bancorp currently trades at $24.86, in line with $24.87 just before the earnings. Is the company at an inflection point that warrants a buy or sell? The answer lies in our full research report (it’s free).

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